The telecom service sector has seen exponential growth in last one decade especially after the deregulation of telecom sector and introduction of mobile telephony. The subscriber base has grown and crossed 900 million, which is second largest after China. It will not be unreasonable to say that there has been a proliferation of telecom network to even the remotest part of the country which was not there till the late 1980s. Also not to be ignored is the fact that the Indian telecom service industry has made very significant contributions towards the GDP of the country.
The exponential growth of the telecom service sector has been possible because of the forward thinking of successive Governments and subsequent land mark policy initiatives and positive steps taken over a period of time. All such initiatives taken by the successive Government?s have resulted in high penetration of communication services across the length and breadth of the Country, which further enabled the flow of information across sectors.
While the initiative by the Government to liberalize the Indian telecom sector and allowing the private sector to step into the telecom resulted in creating a state of art telecom infrastructure on one hand, but on the other hand it also created a scenario wherein the local telecom equipment manufacturing industry started to suffer.
The Indian telecom infrastructure which today is one of the largest contributors to India?s GDP, has been built using by and large imported network equipment to the extent of almost 97-98 per cent. The high percentage of important component in India?s telecom network till one point of time was justified as Indian telecoms manufacturing industries was in the process of evolution by either setting up or updating its facilities or were busy scouting for the right experienced partners. Unfortunately, the government?s liberal policies were expected to provide a fillip to the growth of the manufacturing sector did not happen. Instead, the Indian telecom service sector became the blue eyed boy of the successive Governments and the Indian telecom manufacturing sector which got a step motherly treatment. Over a period of time despite all efforts by various sections of the Indian industry, the telecom manufacturing sector has hardly shown any significant growth and now what could be the most vibrant sector is facing a gradual decline.
Today the Indian telecom manufacturing or infrastructure dependency on imports is a major cause of worry. While the teledensity has grown manifold, it has opened up a huge domestic market for the telecom equipment, for telecom service provider and for the end customer. The Indian or local telecom equipment manufacturing sector has hardly grown over the last one decade or so. The dismal picture of Indian telecom manufacturing sector is evident from the fact that for the year 2008-2009 the market share was less than 2 per cent of the total market size which during 2009-2010, grew to less than 3 per cent of the total market size of Rs 55,000 billion.
Due to the over-dependency on imported equipments and slackness on the part of implementation of rules and regulation, there is insignificant real manufacturing activity in the country which means that there is not any noticeable contribution towards the Indian economy.
In the present scenario, all the dominant telecom service providers have tied up with the 5-6 major foreign telecom equipment suppliers. The situation has been further aggravated because almost all the dominant service providers have gone in for a Managed Services model albeit outsourced to the subsidiary companies of equipment suppliers only. As a result, we are not gaining anything on the technological front or developing any meaningful expertise or manufacturing base. This virtually leaves no scope for any genuine domestic manufacturer to break the mutually beneficial alliance and make in-roads into the market.
Indian telecom manufacturers face several handicaps, the most severe being the lack of economy of scale when competing in a zero-import duty regime, against global competitors who have large volume base (and hence low costs). In electronics unless a company gets large volumes, they can never become price competitive against global players, no matter how good they do on R&D and efficient product designs. In addition, Indian Product companies face disability which adds up to 22 per cent, when competing against companies from USA, China etc.
In today?s age, secure, reliable and trustworthy telecommunication networks are a critical asset for any country- both from security as well as commercial angles.
To address these issues, TRAI as well as many other reports have made a clear recommendation that India should leverage its domestic market growth, to provide the initial volume base to Indian telecom product companies, which will give them the economies of scale to reduce their costs.
As per TRAI?s proposal, all procurement of telecom/electronics products by government or government licensees must require that 30% of these are in the form of Indian Products in the first year. If Indian Products (where the IPR and R&D is in India) are not available, then at least ?Manufactured in India? products should be procured. To ensure fairness in procurement, no compromise on price or quality or technology has ever been envisaged or asked for.
However, if the Government does not consider the entire issue in totality, the market would still be driven by the 5-6 equipment manufacturers whether they import the equipment at 0 per cent Customs Duty or set up some manufacturing facilities here. Whilst some of the objectives of the Government relating to boosting of manufacturing sector, if these foreign companies start doing some manufacturing activities in the country, a very serious aspect of national security would still remain unaddressed. Induction of foreign made equipment gives rise to security concerns which have grown manifold with the arrival of Chinese vendors on the scene. In today?s technological advanced world, facilities like remote control of the network, possibility of embedded malware/spyware, possibility of data duplication etc have also become a matter of serious concerns for all Government.
Realizing the impending alarm bells relating to national security, even advanced countries like the US, Canada, Australia, EU have ordered investigations and even gone to the extent of banning some companies from supplying equipment for projects, critical for national security angle. India is yet to take a call on this and have always been sidelining the issue.
However, all is not lost and there is still a ray of hope for the telecom equipment manufacturing sector because of some recent Government initiatives like the National Telecom Policy 2012 and the favorable PMA guidelines expected shortly.
The NTP 2012 approved on May 31, 2012 envisages to make India a Global Hub for the supply of telecom equipment, a really ambitious but nevertheless a very welcome move. One can sincerely hope and wish that a check and balance mechanism is now put in place without any loss of time to make it happen.
The Government has also released notification for giving Preference to domestically manufactured electronic goods due to security considerations in Government procurement. The expected PMA Policy is not a market protectionist measure as it nowhere stipulates directly or indirectly that preference as specified in the policy is available by overlooking the technical compliances or price competitiveness.
The present envisaged framework of the ?Preferential Market Access Policy? stipulated by the Department of Telecommunication is not beneficial to the development of the domestic products unless and until the following definition of ?Indian Product? is incorporated therein.
All those products for which R&D is done in India, so that the know-how and control resides in India only to combat obsolescence, and to thwart security threats. In case any work is outsourced, the entire control and ownership of such work must rest with Indian registered company, having majority stakes with Indian citizen. Product IPR, viz. brand name, source code of proprietary software, hardware design, bill of material etc., exclusively created for the product, must be globally owned solely by an Indian Company.
DOT may ?Charge R&D Cess? from all licensed Telecom Service Providers (TSP?s) at 5 per cent of their AGR. This R&D Cess can be leveraged to provide incentives/disincentives to the TSP?s who buy/do not buy ?Indian Products? as per the stipulated percentage share of their yearly procurement
All equipments whether imported or indigenous to be inducted into the Indian telecom network must conform to the GRs/Technical Specifications laid down by Telecom Engineering Centre (TEC). Type approval certification by TEC should be made mandatory before import and deployment of any Telecom product into the country as applicable in all other countries.
Given that we have been lagging behind other countries either in terms of favorable government policies to promote domestic telecom equipment manufacturing or a sincere will of the Government to implement some favourable policies, we can even now catch up with global competitors who are enjoying the fruits of this growing second largest telecom market in the world. The Government on its part seems to be sincere and determined to make it happen and NTP-2012 and PMA policy are the initiatives which are clear indications of the same.
We are now moving ahead from 2G & 3G to 4G. Recently 4G services were launched in West Bengal. The response for 3G services has not been overwhelming as yet, but, we feel that the recent tariff cuts by almost 70 per cent by several operators, would act as a catalyst and provide an impetus to the growth of 3G & 4G services. On the manufacturing front, this provides a tremendous opportunity in the hitherto untapped market. The telecom equipment manufacturing sector is quite upbeat on this and several companies like Tejas Networks, Kaveri Telecom, Vihaan Networks, PointRED etc., have announced ambitious plans to grab a sizeable market share in this field.
With the Government showing its positive indulgence in this direction to create a conducive environment for the manufacturing or sector and to open up many opportunities for Indian companies and enthuse them to offer products and applications, it is the time for Indian companies to rise to the occasion and grab the opportunity to start acquiring market share so as to help the Government in realizing the long cherished ambitious dream of making India ?A Global Hub? for telecom equipment manufacturing.
